The revamped proposal seeks to clean up to $500 billion in spoiled assets from banks' books and support $1 trillion in new lending through an expanded Federal Reserve program.

The plan, renamed "Financial Stability Plan," will also devote $50 billion in federal rescue funds to try to stem home foreclosures and soften the crushing impact of the deep housing crisis now afflicting the entire economy.

Geithner's speech was not well received by financial markets. Stocks plunged and the dollar sank.

Geithner said that it was "important to move alongside the recovery and investment plan" and "get credit flowing again to small businesses and consumers."

The Treasury secretary also said the Wall Street compensation system would "absolutely" have to change. "We've set out new conditions," he added. "As important as that we need to try to transform the overall system of incentives.. those incentives were part of what caused this crisis."

When asked if the U.S. financial system was broken, Geithner said, "Parts are strong and doing well, you are seeing some thawing in the credit markets. But parts of our system are very badly damaged. We will have to do more to make the recovery work. The only way forward is to move as comprehensibly as possible."

As for the question about his personal tax problems hindering him from doing his job, Geithner said, "I screwed up, but my focus is on helping this president solve this country's problems, and everything I do is going to be motivated by helping him do the extraordinary things we're going to need to do to get this economy back on track."

Treasury's Geithner on the Financial System

Treasury Secretary Timothy Geithner says details of the plan will not be brought out until the government gets it right, with CNBC's Steve Liesman & NBC's Brian Williams

And in response to a question about helping the auto industry, Geithner said, "As you know on February 17th, we're going to see at least the initial outlines that these companies believe are going to be necessary... if there is a case to use public resources... make the case to the American people.. we will look very carefully at the best way to do that."

The rescue plan will use a variety of methods to take bad assets off of banks' books, including encouraging private firms to buy up the toxic debt, as well as provide aid to consumers, according to the Treasury.

The new plan would also greatly expand an effort to unclog credit markets that provide loans to consumers and businesses. Funding for this effort would see a huge increase from $20 billion up to $100 billion.

Geithner also announced that the program would be expanded beyond consumer and small business loans to provide aid to the troubled commercial real estate sector.

And Geithner said a public-private investment fund will be established, seeded with government money, to leverage private capital so that so-called toxic assets can be sponged out of the faltering banking system. The hope is that that will enable banks to resume lending.

Geithner acknowledged that deep skepticism has developed over the fairness and efficiency of a $700 billion bank bailout program approved by Congress in October. He said leaders of some financial institutions that have received money had squandered the good faith that is needed to make the bank rescue effective.